Chapter 12

Question 1

Profit= X - Y?

Answer 1

TR-TC

Question 2

Profits are maximized when P (X) MC?

Answer 2

equals MC

Question 3

T/F market price allocates production across firms so that Mc1 = Mc2

Answer 3

True, and this continues.

Question 4

In a market in which P > Ac, firms desire is to …. (X).

Answer 4

Enter

Question 5

When firms begin to enter an industry, what happens to supply, price and profits?

Answer 5

supply increases, price decreases, and profits decrease.

Question 6

In a market in which P < Ac, firms desire is to …. (X).

Answer 6

• exit the industry

Question 7

When firms begin to exit an industry, what happens to supply, price and profits?

Answer 7

supply decreases, price increases, and profits increase.

Question 8

What is the elimination principle?

Answer 8

above normal profits are eliminated by entry, and below normal profits are eliminated by exit.

Question 9

Entrepreneurs move resources from blank -> blank

Answer 9

unprofitable to profitable industries.

Question 10

AFC or average fixed cost is calculated by?

Answer 10

FC / Q

Question 11

AC or average cost is calculated by ?

Answer 11

TC / Q

Question 12

The average variable cost is calculated by ( AVC)?

Answer 12

VC / Q

Question 13

How do you calculate MC (marginal cost)?

Answer 13

change in TC / Change in quantity

Question 14

If the marginal average < Average.. then?

Answer 14

average goes down.

Question 15

If the marginal average> average… then?

Answer 15

average does up

Question 16

Are the barriers to enter and exit an industry high or low in perfect competition?

Answer 16

very low.

Question 17

T/F an economic profit of zero indicates they are taking home nothing?

Answer 17

false, this isn’t true.